Methods and systems for providing liquidity options and permanent legacy benefits for annuities

ABSTRACT

This invention relates to methods and systems that provide annuities with at least one liquidity option that allows the holder of the liquidity option to exercise the option and convert therewith a portion of a value of the annuity into a liquid asset, such as cash or a cash value, based on the value of future income payments, which can include payments that are guaranteed to be paid for the duration of one or more lifetime. The conversion may be in a variety of forms, such as an advance of at least a portion of the future income payments, or in the form a lump sum distribution of at least a portion of a commuted value of the annuity computed based at least in part on the present value, at the time of the conversion, of future income payments for the remainder of the guarantee period. This invention further relates to methods and systems that provide annuities including a liquid legacy benefit option that provide a lump sum distribution of a portion of an annuity premium to a beneficiary at the end of the guarantee period that is substantially certain at the inception of the annuity.

COPYRIGHT NOTICE

A portion of the disclosure of this patent document contains material,which is subject to copyright protection. The copyright owner has noobjection to the facsimile reproduction by anyone of the patent documentor the patent disclosure, as it appears in the Patent and TrademarkOffice patent files or records, but otherwise reserves all copyrightrights whatsoever.

BACKGROUND OF THE INVENTION

This invention relates generally to methods and systems for providingannuities with liquidity options and permanent legacy benefits. Moreparticularly, the methods and systems of the present invention provide apolicy owner with options that when elected or exercised allow theowner, which may or may not be the annuitant, or, in the case of thelegacy benefit, the beneficiary to convert some or all of an annuityinto a liquid asset, such as cash. Liquidity is used herein to generallydenote enabling an individual to convert a portion or all of the valueof a contract into a liquid asset. Legacy Benefit is used herein togenerally denote a cash benefit payable to the policy owner'sbeneficiary or beneficiaries in the event of the annuitant's (or bothannuitants') death.

Annuities are generally contracts that provide individuals with means toaccumulate money and/or turn accumulated money into future incomepayments, for a predefined period of time, computed based on the lifeexpectancy of one or more annuitants. The income payments may beguaranteed for the life or lives of the annuitants and/or for a termcertain, such as 5, 10, 15, or 20 years. Annuities are typicallypurchased from insurance companies that offer a variety of options withregard to the manner in which the income payments are disbursed.Immediate annuities, for example, provide income payments that generallybegin immediately or within one year of the contract date.Alternatively, deferred annuities, as the name applies, provide incomepayments beginning at a later date, such as at the date the ownerselects as the annuitant's retirement date.

Although annuities are often a prudent investment strategy for manyindividuals due, for instance, to the lifetime payment guarantee andcertain tax and spendthrift advantages above alternative investments,the lack of or limited liquidity associated with annuities during thepayout phase may result in potential annuitants passing up annuities asan investment option. Currently, liquidity options appearing inannuities in the art typically include restrictions or limitations thateither prevent or dissuade the annuitant from exercising the options toconvert the annuity or a portion thereof into cash except in certainpredefined and typically extenuating circumstances. For example, certainannuities include liquidity options in the form of accelerated benefitsthat allow annuitants diagnosed with a critical illness to elect toaccelerate income payment in order to receive a lump sum benefit in lieuof future payments. Such accelerated benefits, however, do not provideliquidity for annuitants in other than life threatening circumstancesand thus provide no measure of relief for annuitants that may need moneyfor less extenuating circumstances.

Additionally, certain annuities provide liquidity by allowing annuitantsto withdraw all or part of an amount of an applicable guaranteed minimumpayment duration or total of payments, such as up to the paid premium ora portion thereof. However, since the amount of the withdrawal isgenerally limited to the value of the predetermined minimum paymentduration or total, owners may find there is little remaining value tobenefit from a withdrawal at precisely the time when their need forliquidity is more likely to arise.

Annuities further fail to provide adequate legacy benefits tobeneficiaries after the annuitants die. An annuity purchaser has avariety of options regarding payments to beneficiaries. For example,periodic income payments to a selected beneficiary may commence afterthe annuitant of a single life-annuity dies. Alternatively, a lump sumdistribution may be paid. Since, however, the payment or payments to thebeneficiaries are typically based on a predetermined minimum paymentduration or total, such as the amount of the paid premium or purchaseprice, and since the benefit to the beneficiaries is only the valueremaining after any disbursements to the annuitant, the distribution tothe beneficiary is not certain at least at the inception of the annuity.Annuitants interested in providing a lump sum legacy benefit to abeneficiary that is substantially certain at least at the inception ofthe annuity without resort to a separate life insurance policy maytherefore also shy away from annuities as an investment option.

There is therefore a need for methods and systems for providingannuities with liquidity options that overcome the shortcomingsassociated with the liquidity options described above and legacybenefits that overcome the shortcomings associated with the legacybenefits that are currently available. A few computerized systems havebeen adopted in the art with respect to annuities, such as thosedescribed in U.S. Pat. No. 5,893,071, entitled “Annuity Value Software,”U.S. Pat No. 5,933,815, entitled “Computerized Method and System forProviding Guaranteed Lifetime Income with Liquidity,” and U.S. Pat. No.6,064,969, entitled “Flexible Annuity Settlement Proposal System,” eachof which is hereby incorporated herein by reference. The systems andmethods described therein do not, however, address and/or overcome theshortcomings associated with annuity liquidity and legacy benefits.

SUMMARY OF THE INVENTION

This invention relates to methods and systems that provide, among otherthings, annuities with liquidity options without some or all of theshortcomings associated with annuity liquidity appearing in the art andlegacy benefits without some or all of the shortcomings associated withexisting annuity legacy benefits.

In one aspect of this invention, a method of providing an annuity havinga guarantee period is provided that includes the steps of obtaininginformation useful for issuing an annuity from an individual, andcomputing either an annuity premium or future income payments based atleast partially on the information obtained from the individual. Theannuity includes at least one liquidity option, which allows the holderof the liquidity option to exercise the option and convert therewith aportion of a value of the annuity into a liquid asset. In at least oneembodiment, the value of the annuity is computed at least in part basedon or taking into account the value of the future income payments. Theliquidity option may be limited to being exercised and thereby allowingthe holder of the option to convert a portion of the value of theannuity into a liquid asset only after the annuity payments begin and/orfor a limited number of times.

The conversion may be in a variety of forms, such as in the form of anadvance of at least a portion of the future income payments, or aplurality thereof, such as six months of future income payments. In oneembodiment, the liquidity option limits the holder's ability to exercisethe option to only twice after the annuity payments begin. To accountfor the advance of the future income payments, future income paymentsdue to the holder of the liquidity option subsequent to the advance maybe ceased for a period of time. For instance, where six months of futureincome payments are advanced, the future income payments will cease forsix months subsequent to the advance. Conceptually, the advance may beviewed as a lump sum distribution of six months worth of future incomepayments in which instance the advance will be of five future incomepayments and consequently future income payments will cease for a periodof five months to account for the distribution.

In one embodiment, the conversion is in the form a lump sum distributionof at least a portion of a commuted value of the annuity, such as 30% ofthe commuted value, computed based at least in part on the presentvalue, at the time of the conversion, of future income payments that areexpected to be paid, e.g., over the remainder of the annuitant'slifetime or the remainder of the guarantee period. The future incomepayments may be based on the life of the annuitant or beneficiary, inwhich instance the lump sum distribution of the commuted value of theannuity or a portion thereof is computed based at least in part on thepresent value, at the time of the conversion, of the future incomepayments expected to be paid out over the life of the annuitant. Theholder of the liquidity option may further be limited in this respect toexercising the liquidity option for a limited number of times, such asonce after the annuity payments begin, or at predefined time intervalsafter the annuity payments begin, such as at about the fifth, tenth, orfifteenth anniversaries of a commencement date to receive incomepayments, or upon a showing of an occurrence of a predefined event.

In another aspect of the present invention, a method of providing anannuity is provided that includes the steps of obtaining informationuseful for issuing an annuity from an individual, and computing futureincome payments based at least in part on a legacy benefit option whichprovides a lump sum distribution of a portion of an annuity premium to abeneficiary upon the death of the annuitant or annuitants. The lump sumdistribution is substantially certain at the inception of the annuity.The lump sum distribution may be in the form of a percentage of anannuity premium, such as about 25% or about 50%. In one embodiment, theguarantee period of the annuity is based on the life of the individual.The future income payments are therefore computed based on a liquidbenefit option, which provides a lump distribution of a portion of theannuity as a death benefit to the beneficiary. In one embodiment, thelegacy benefit option provides a lump sum distribution to a beneficiarythat does not expire during the term of the annuity.

In another aspect of the present invention, a method of facilitatingdistribution of annuity payments is provided that includes the steps ofreceiving a demand for a liquid distribution, and computing the liquiddistribution according to at least one liquidity option of an annuity.The liquidity option generally allows the holder of the liquidity optionto convert a portion of the value of the annuity into a liquid asset,such as cash. The value of the annuity, in at least one embodiment, iscomputed at least in part based on future income payments, which caninclude payments that are guaranteed to be paid for the duration of oneor more lifetimes.

In one embodiment, the liquid distribution may be in the form of anadvance of at least a portion of future income payments, or a pluralitythereof, such as an advance of six months of the future income payments.The distribution may also be a lump sum distribution of six months worthof future income payments. The option may be limited with respect to thenumber of times it may be exercised, such as twice after the annuitypayments begin. The method may further include the steps of making theliquid distribution, and ceasing future income payments due to theholder of the liquidity option subsequent to the advance for a period oftime to account for the advance of the future income payments. Forinstance, where an advance of six months of future income payments aremade, the future income payments may cease for six months subsequent tothe advance or where the advance is for five future income payments, thefuture income payments cease for a period of five months to account forthe lump sum distribution.

In another embodiment, the liquid distribution is made in the form of alump sum distribution of at least a portion of the commuted value, suchas 30% of the commuted value, of the annuity computed based at least inpart on the present value, at the time of the conversion, of futureincome payments that are guaranteed to be paid, e.g., for the remainderof the guarantee period. The future income payments may be based on thelife of the annuitant, in which instance the liquid distribution is atleast a portion of the commuted value of the annuity computed based atleast in part on the present value, at the time of the conversion, ofthe future income payments expected to be paid out over the life of theannuitant. The right to exercise the liquidity option may be limited toa certain number of times, such as once after the annuity paymentsbegin, and at predefined time intervals after the annuity paymentsbegin, such as at about the fifth, tenth, and fifteenth anniversaries ofthe commencement of income payments, or upon a showing of an occurrenceof a predefined event.

BRIEF DESCRIPTION OF THE DRAWINGS

The invention is illustrated in the figures of the accompanying drawingswhich are meant to be exemplary and not limiting, in which likereferences are intended to refer to like or corresponding parts, and inwhich:

FIG. 1 is a flowchart of a method of providing an annuity which includesat least one liquidity option according to one embodiment of thisinvention;

FIG. 2 is a flowchart of a method of facilitating distribution ofannuity payments in accordance with at least one liquidity optionaccording to one embodiment of this invention; and

FIG. 3 is a diagram of a system useful for providing an annuity whichincludes at least one liquidity option according to one embodiment ofthis invention.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS

The methods and systems according to the present invention may beapplied equally to any type of annuity, such as an immediate annuity, adeferred annuity, a fixed rate annuity, a variable annuity, etc.Therefore, although the methods and systems herein will be discussed byway of example in relation to certain types of annuities, it isunderstood that the present invention is not limited thereto.

Referring to FIG. 1, a method of providing an annuity with at least oneliquidity option according to an embodiment of this invention begins atstep 102 with obtaining information from an individual or individuals,such as potential annuitants, that is useful for issuing an annuitycontract. The nature of the information that is useful in issuing anannuity contract may vary depending on the type of annuity that is beingconsidering by the individual. Such information may generally beclassified as personal information, or information regarding variablesassociated with the annuity or any available annuity options. Thus, thestep of obtaining information, may include a plurality of steps, such asobtaining personal information 104, obtaining selected or specifiedannuity variables 106, and obtaining selected or specified annuityoptions 108.

The nature of personal information may also vary depending on the typeof annuity, and may include information regarding an annuitant's name,age, date of birth, gender, the state or residence, etc. If the annuityincludes a co-annuitant or beneficiary, the co-annuitant's and/orbeneficiary's personal information may also be obtained. Some personalinformation may be necessary to compute certain variables associatedwith annuities, such as to compute the future income payments, thepremium or purchase price, etc., and may therefore be required. Forexample, income payments for an immediate life annuity may be computedbased on the annuitant's age and gender.

Information regarding annuity variables may be selected or specified byeither the potential annuitant or the insurer. An insurer is used hereinto denote the party offering and/or guaranteeing the annuity contract.The insurer may therefore be an insurance company, an underwriter, anemployer, a private party, agents thereof, etc. Annuity variables aregenerally variables that may be used in computing the future incomepayments or the premium, e.g., the purchase price of the annuity.Annuity variables may therefore differ between different types ofannuities. For immediate annuities, for instance, annuity variables mayinclude the premium for the annuity, the desired future income payments,any applicable increases in the periodic payments over time to accountfor, e.g., inflation, the guarantee period, e.g., life or for a termcertain, the applicable interest rate, fees, etc. The insurer willtypically specify certain variables, such as the interest rate or ratesand any applicable fees. For example, the annuitant may specify orselect a premium or purchase price for an immediate annuity of $40,000that will provide level monthly future income payments for the life ofthe annuitant at a rate and fees specified by the insurer. Variables fordeferred annuities may further include information regarding the datethe annuity matures. In the above example, the potential annuitant mayfurther select the maturity date as the date the annuitant reaches theage of 65, which allows annuitants to make periodic payments orcontributions that will amount to the total the price of the annuity.

Annuity options may be specified or selected by either the potentialpurchaser or the insurer. Annuity options are generally contractualrights conferred under the annuity contract to either party orbeneficiary that allows the holder of the right to demand performance ornon-performance from one or all of the remaining parties orbeneficiaries to the contract. Annuity options, for instance, may beoptional features or riders that modify a standard annuity, in whichcase the annuitant will be able to select from one or more availableannuity options. Alternatively, certain annuity options may be standardfeatures of the annuity contract, which will be specified by theinsurer. Since annuities are contracts, annuity options may vary innature and scope limited only by the scope of human ingenuity.

In one embodiment, the annuity contract includes at least one liquidityoption that allows the holder of the option, generally the owner of theannuity which may or may be the annuitant, and/or the beneficiaries ofthe annuity, to convert a portion of the value of the annuity computedat least in part based on the value of future income payments, which maybe lifetime dependent, into a liquid asset, such as cash. The value ofthe future income payments generally takes into account the value of theannuity with respect to the expected amount of the future incomepayments for the guarantee period, which may include the lifetime of theannuitant or annuitants. The liquidity option may further allow theowner and/or beneficiary to retain the right to future income paymentsafter the liquid option has been exercised for any remainder of theperiod over which payments are guaranteed to be made, which may includethe lifetime of the annuitant or annuitants. The conversion may occurbefore and/or after the owner elects to begin receiving annuity paymentsand may be in the form of advanced future income payments or a lump sumdistribution of a portion of the value of the annuity.

With regard to the advanced future income payment embodiment, a holderof the right to exercise the option may demand from the insurer anadvance of future income payments or a portion thereof. Although thenumber of times the advanced payment option may be exercised and themagnitude of the advance may be unlimited, an insurer may limit theholder's rights in this respect. For instance, the insurer may limit thenumber of times the option may be exercised, such as once, twice, etc.,and may limit the amount of the advance in terms of a dollar amount, anincome period, e.g., six months of income, or a plurality of futureincome payments, e.g., five or six monthly future income payments. Theinsurer may further limit the right to exercise the option until afterthe annuity payments have begun.

In one embodiment, after the advance is distributed, subsequent futureincome payments will not be distributed for a period of time to accountfor the advance. Thus, for example, an advance of six monthly futureincome payments may cause the future income payments to cease for thesix months for which the advance was taken. Conceptually, the advancemay be viewed as a lump sum distribution of six months worth of futureincome payments in which instance the advance will be of five futureincome payments and consequently future income payments will cease for aperiod of five months to account for the distribution. The insurer facesa risk associated with the advance in the event the insured dies beforethe advance is accounted for, which may be offset with a fee or othermeasure. In one embodiment, the risk is born solely by the insurerwithout a corresponding transfer of the risk to the annuitant in termsof higher fees or costs above a basic annuity without the option. Inanother embodiment, the right to exercise the option is not contingenton collateral circumstances, such as illness, catastrophic events, etc.,and may be freely be exercised by the holder subject to any numericallimitations on the number and magnitude of the advance set forth in theannuity.

With regard to the lump sum distribution of the value of the annuityembodiment, a holder of the right may demand a portion of a commutedvalue of the annuity measured based at least partially on the presentvalue at the time of the conversion of future income payments for theremainder of the guarantee period, such as for the term certain, e.g.,5, 10, 15, etc. years, or for the life expectancies of the annuitantsand/or beneficiaries. Thus, the owner may demand a lump sum distributioncommensurate with the value of the future income payments for theduration of the guarantee period, which may include the lifetime of theannuitant or annuitants. The scope of the demand under this option mayalso be limited by the insurer. The insurer, for instance, may limit thenumber of times the right may be exercised, such as once, twice, etc.,and may limit the right to exercise the option except at certain timesduring the term of the annuity, such as at the fifth, tenth, andfifteenth anniversaries of a predefined date, such as the date of thecommencement of income payments, or upon a showing of the occurrence ofcertain predefined events, such as fire, flood, illness, etc. Theinsured may further limit the magnitude of the demand in terms of adollar amount, a percentage of the commuted value of the annuity, suchas 20%, 30%, 40%, 50%, etc. In one embodiment, upon distribution of thepayment under this option, future income payments will be adjusted toaccount for any distribution. A fee or a surcharge may account for therisk associated with this lump sum distribution liquidity option to theinsurer, assessed in connection with the lump sum distribution orreflected in the price of the annuity.

In another embodiment, a liquid legacy benefit option is available thatmay be selected or specified by the potential owner or purchaser thatprovides a lump sum distribution to a beneficiary upon the death of theannuitant or annuitants that is substantially certain at the inceptionof the annuity contract. In another embodiment, the liquid legacybenefit option, which provides a lump sum distribution to a beneficiary,is permanent or does not expire at any time during the term of theannuity. The lump sum distribution may be specified in terms of a dollaramount, a percentage of the price of the annuity, a number of futureincome payments, etc. For example, the potential annuitant may specify alump sum distribution that is 25% or 50% of the premium or purchaseprice of the annuity. Thus, the beneficiary of an annuity having apremium of $40,000 and a liquid death benefit of 25% will receive a lumpsum distribution upon the passing of the annuitant of $10,000. A liquiddeath benefit option may be accounted for, for example, by computingfuture income payments based at least in part on the liquid legacybenefit option, which generally tends to reduce the future incomepayments otherwise due the annuitant upon the election to receiveannuity income payments.

The information that is useful for issuing an annuity contract may beobtained by any one of a variety of methods. A purchaser of the annuity,for example, may give the information in person to a broker or an agentacting on behalf of the insurer who will use the information to computea price for the annuity or compute estimated future income paymentamounts based at least partially on the information obtained.Alternatively or in addition, the potential purchaser may relay theinformation to a remote agent, broker, or insurer with automated means,such as with personal computer or other device capable of communicatingthe information to the respective party for processing. Potentialpurchasers, for example, may communicate the relevant information viaemail or other forms of text messaging, or via an insurers World WideWeb site which will provide an interface for potential annuitants tocommunicate specific information to the insurer.

After the information is obtained from the potential purchaser and/orprocured by the insurer, a premium for a specified or desired futureincome payment, or the future income payments for a specified or desiredpremium, may then be computed based at least partially on theinformation obtained. Additionally, for a deferred annuity, the periodiccontribution necessary to total the premium may also be computed. Thepremium or the future income payments may be computed using standardequations and/or actuarial data known in the art with regard toannuities. Computation may be performed with a variety of manual and/orautomated means. In one embodiment, the monthly future income paymentsfor a life annuity having the lump sum death benefit option is computedwith the following algorithm:$B = \frac{\left( {{{Premium} \times \left( {1 - T} \right)} - F} \right) - \left( {k \times {Premium} \times A_{x}} \right)}{a_{x}}$where:

B=monthly future income payment at issue

T=premium tax (if applicable)

F=policy fee

k=lump sum reduction factor

x=issue age (in years)

A_(x)=single premium per unit of death benefit for issue age x

a_(x)=sent value of a life annuity for issue age xThe lump sum reduction factor, k, is a ratio based on the percentage ofthe premium that may be distributed as to a beneficiary. In oneembodiment, k is equal to 0.25 for a 25% lump sum death benefit and 0.55for a 50% lump sum death benefit. The values for the net single premiumper unit of death benefit for issue age x, A_(x), and the present valueof a life annuity for issue age x, a_(x), may further be computed withthe following algorithms: $\begin{matrix}{A_{x} = {\sum\limits_{t = 0}^{{({115 - x})} \times 12}\quad\left( {{{}_{}^{}{}_{}^{}} \times q_{x + t} \times v^{t}} \right)}} \\{a_{x} = {\sum\limits_{t = 0}^{{({115 - x})} \times 12}\quad\left( {v^{t} \times {{}_{}^{}{}_{}^{}}} \right)}} \\{{{}_{}^{}{}_{}^{}} = {\prod\limits_{t = 0}^{n}\quad p_{x + t}}}\end{matrix}$where:

t=time measured in months since issue

_(t)p_(x)=Probability person age x survives to time t

q_(x+t)=Probability person age x+t does not survive one month

p_(x+t)=Probability person age x+t survives one month$v = \frac{1}{\left( {1 + i} \right)^{1/12}}$

i=interest rate

The computed premium and/or the future income payments may then bepresented to the user in the form of an offer to purchase the annuity,step 112. If at step 114 the individual does not accept the offer topurchase the annuity, the information obtained is either saved, such ason the computer system described below, for future reference ordiscarded, and the methods described above can be repeated for the nextpotential purchaser. If the individual to whom the offer was madeaccepts the offer, the annuity will issue at the computed or specifiedpremium or purchase price, step 116. The steps required to issue anannuity vary depending on the nature of the individual that obtained theinformation. For example, where the insurer or a party authorized to acton behalf of the insurer obtained the information, the annuity willissue automatically or at some predetermined time thereafter, e.g., 30days, etc. If however the individual is an insurance agent with limitedauthority to bind the insurer, the annuity will issue only after firstbeing reviewed and accepted by the insurer. Similarly, conditions can beimposed by the insurer, such as a physical, etc., that must be satisfiedbefore the annuity issues. In any event, if the annuity issues, theinformation obtained, such as the personal information, annuityvariables, and annuity adoptions, and any other relevant information arestored in an appropriate database, step 118, such as an annuitantdatabase.

Referring to FIG. 2, a method of facilitating distribution of annuitypayments in accordance with at least one liquidity option begins, in oneembodiment, at step 200 with receiving a demand exercising at least oneliquidity option of an annuity contract. The demand may be received fromthe holder of the right under the annuity contract in a variety of ways,including a hard copy demand or an electronic version thereof. Thedemand will then be tested at step 202 with the limitations set forth inthe annuity for which the demand is being exercised, and anycorresponding information related thereto. Testing the demand 202generally denotes determining whether or not to allow the demandingparty to convert at least a portion of the value of an annuity into aliquid asset, such as cash.

In one embodiment, testing includes determining whether or not theannuity is in effect or has otherwise lapsed, step 204. In anotherembodiment, testing includes determining whether or not any limitationor restriction that must be satisfied prior to any distribution issatisfied, step 206. Testing will vary depending on the type of theliquidity option, e.g., the conversion, being exercised. The conversion,as explained above, may be in the form of advanced payments, a lump sumdistribution of a portion of the value of the annuity, or a lump sumdeath benefit.

Thus, where the demand is made for an advance of future payments,testing will entail determining whether the option was previouslyexercised and whether the current demand in combination with anyprevious demands fall within the maximum number of times the option maybe exercised. For example, if the annuity limits the option to beingused once, testing entails determining if the option has been previouslyexercised. Testing may further entail determining whether the amount ofthe demand falls within the maximum amount set forth in the annuitycontract. If the maximum amount of the advance is five or six monthlyfuture income payments, testing entails determining whether the demandis greater than five or six monthly future income payments,respectively. Additionally, if the option is limited to being exercisedafter the annuity payments begin for the demanding party, testing willentail determining whether the owner or beneficiary is entitled toreceive income payments.

Where the demand is for a lump sum distribution of some or all of thevalue of the annuity, testing will similarly entail determining if therestrictions set forth in the annuity have been satisfied. Thus, testingmay entail determining whether the option was previously exercised, thedemand is timely, e.g., such as at about the fifth, tenth, and fifteenthanniversaries of a predefined date, such as income commencement date, ora defined window of opportunity based thereon, whether the demand ismade in connection with a predefined event, such as those associatedwith catastrophic events including fire, flood, illness, etc., orwhether the demand is within the maximum amount set forth in the annuitycontract. Where the demand is for a lump sum death benefit, testing willentail determining whether the guarantee period for the annuitant haslapsed, e.g., the annuitant died, and whether there was any previouslump sum benefit distribution.

If at steps 202, 204, or 208 the demand fails with regard to thelimitations or restrictions set forth in the annuity contract, thedemand will be denied, step 208, and the above steps may be repeated forthe next or subsequent demands. If the demand passes the testingcriteria, the amount of liquid distribution may then be computed, step210. Computing the liquid distribution will vary in accordance with thetype of liquidity option for which the demand is being made. If thedemand is for an advance of future income payments, the liquiddistribution will be computed in accordance with the demand for theadvance, such as the demand for a particular a dollar amount, an incomeperiod, e.g., six months of income (advance of five months of futureincome payments), or a plurality of future income payments, e.g., sixmonthly future income payments. In one embodiment, advances will not bediscounted to reflect a loss based on the time value of money. Thus, anadvance of six monthly future income payments of $300 will be $1,800.Alternatively, the advance will reflect the present value of theadvanced future income payments at the time of the advance, therebyaccounting for the loss based on the time value of money.

If the demand is for a lump sum distribution based on the commuted valueof the annuity, the commuted value will be computed based at leastpartially on future income payments for the remainder of the guaranteeperiod, such as for the term certain, e.g., 5, 10, 15, etc. years, orfor the life expectancies of the annuitants and/or beneficiaries, or aportion thereof, such as 10%, 20%, 30%, etc. of the commuted value. Inone embodiment, the amount of the demand for the lump sum distributionwill be limited only to 30% of the commuted value, thus 30% of thecommuted value will in this instance be computed. For a life annuity,the commuted value will therefore be based at least partially on thelife expectancy of the annuitants. In one embodiment, the commuted valueof a single life annuity, is computed with the following algorithm:${W\quad D_{g}} = {{.3} \times {\sum\limits_{t = 1}^{\max{({{l - g},{e_{x} - g}})}}\quad{B_{({g + t})} \times v_{w\quad{d{({g + t})}}}}}}$where:

WD_(g)=muted value at time g

g=number of months between income start date and withdrawal date

t=time measured in months since withdrawal date

B_(t)=monthly benefit at time t for an annuity starting with an initialbenefit of $1.00$e_{x} = {{\sum\limits_{t = 1}^{\infty}\quad{{}_{}^{}{}_{}^{}}} = {{future}\quad{life}\quad{expectancy}\quad{at}\quad{issue}\quad{for}\quad{person}\quad{age}\quad x\quad\left( {{in}\quad{months}} \right)}}$

x=issue age of primary annuitant (in months)

v_(wd(t))=(1+i_((g+t))+0.01+IRCA)^(−(t/12)) for (g+t)<361

v_(wd(t))=(1+i₃₆₀+0.01+IRCA)^(−(360−g)/12)×(1.055+IRCA)^(−(g+t−360)/12)for (g+t)>360

i_(t)=interest rate applicable t months after issue

IRCA_(g)=1.00×(CMT_((g))−CMT₀) if CMT_(g)<CMT₀

IRCA_(g)=1.25×(CMT_((g))−CMT₀) if CMT_(g)>CMT₀

CMT_(g)=10 year Constant Maturity Treasury yield g months after issue

_(t)p_(x)=probability annuitant issued at age x survives t months afterissue

Similarly, the commuted value of a life annuity for joint lifeannuitants may be computed with the following algorithms:

If both annuitants are alive:${W\quad D_{g}} = {{.3} \times {\sum\limits_{t = 1}^{\max{({{l - g},{e_{{xy}{({bar})}} - g}})}}\quad{B_{({g + t})} \times v_{w\quad{d{({g + t})}}}}}}$

If only annuitant x is alive:${W\quad D_{g}} = {{.3} \times {\sum\limits_{t = 1}^{\max{({{l - g},{e_{x} - g}})}}\quad{B_{({g + t})} \times v_{w\quad{d{({g + t})}}}}}}$

If only annuitant y is alive:${W\quad D_{g}} = {{.3} \times {\sum\limits_{t = 1}^{\max{({{l - g},{e_{y} - g}})}}\quad{B_{({g + t})} \times v_{w\quad{d{({g + t})}}}}}}$where:

y=issue age of joint annuitant (in months)

_(t)p_(y)=Probability annuitant issued at age y survives t months afterissue $\begin{matrix}{e_{y} = {{\sum\limits_{t = 1}^{\infty}\quad{{}_{}^{}{}_{}^{}}} =}} \\{{future}\quad{life}\quad{expectancy}\quad{at}\quad{issue}\quad{for}\quad{person}\quad{age}\quad y} \\{\left( {{in}\quad{months}} \right)\quad} \\{e_{x\quad y} = {{\sum\limits_{t = 1}^{\infty}\quad{{}_{}^{}{}_{x\quad y}^{}}} =}} \\{{Joint}\quad{status}\quad{life}\quad{expectancy}\quad{at}\quad{issue}\quad\left( {{fails}\quad{upon}\quad{first}\quad{death}} \right)} \\{\left( {{in}\quad{months}} \right)}\end{matrix}$where:

_(t)p_(xy)=_(t)p_(x)×_(t)p_(y)

e_(xy(bar))=Second to die status life expectancy at issue (fails onsecond death) (in months)

If no primary annuitant specified: lete_(xy(bar))=(k×e_(x))+(k×e_(y))+[(1−2k)×e_(xy)]

If primary annuitant specified: lete_(xy(bar))=e_(x)+(k×e_(y))−(k×e_(xy))

Where:

-   -   k=proportion of initial benefit that is paid upon 1st death. For        example, if the benefit is scheduled to reduce from $100 to $70,        then k=0.7.

In one embodiment, the commuted value for a single life annuity iscomputed with the following algorithms:

if g≧l (WD is after certain period) $\begin{matrix}{X = {\sum\limits_{t = 1}^{360 - g}\quad{B_{({g + t})} \times {v_{w\quad{d{({g + t})}}}}^{t} \times_{({g + t})}p_{x}}}} \\{Y = {\sum\limits_{t = {361 - g}}^{\infty}\quad{B_{({g + t})} \times v_{w\quad{d{({g + t})}}} \times_{({g + t})}p_{x}}}} \\{{WD}_{g} = {{.3} \times \left( {X + Y} \right)}}\end{matrix}$

if g<l (within certain period)$X = {\sum\limits_{t = 1}^{l - g}{B_{({g + t})} \times v_{{wd}{({g + t})}}^{t}}}$$Y = {\sum\limits_{t = {l - g + 1}}^{360 - {({l - g})}}\left( {B_{({l - g + t})} \times v_{{wd}{({l - g + t})}}^{t} \times {{}_{\left( {l - g + t} \right)}^{}{}_{}^{}}} \right)}$$Z = {\sum\limits_{t = {361 - {({l - g})}}}^{\infty}\left( {B_{({l - g + t})} \times v_{{wd}{({l - g + t})}} \times {{}_{\left( {l - g + t} \right)}^{}{}_{}^{}}} \right)}$WD_(g) = .3 × (X + Y + Z)

In one embodiment, the commuted value for a joint life annuity iscomputed with the following algorithms:

if the primary annuitant is selected:WD _(g)=0.3×[a+(k×b)−(k×c)]if the primary annuitant is not selected:WD _(g)=0.3×[(k×a)+(k×b)+((1−2×k)×c)]

if g≦l (WD is after certain period) a = (X₁ + Y₁), where$X_{1} = {\sum\limits_{t = 1}^{360 - g}{B_{({g + t})} \times v_{{wd}{({g + t})}}^{t} \times {{}_{\left( {g + t} \right)}^{}{}_{}^{}}}}$$Y_{1} = {\sum\limits_{t = {361 - g}}^{\infty}{B_{({g + t})} \times v_{{wd}{({g + t})}} \times {{}_{\left( {g + t} \right)}^{}{}_{}^{}}}}$b = (X₂ + Y₂), where$X_{2} = {\sum\limits_{t = 1}^{360 - g}{B_{({g + t})} \times v_{{wd}{({g + t})}}^{t} \times {{}_{\left( {g + t} \right)}^{}{}_{}^{}}}}$$Y_{2} = {\sum\limits_{t = {361 - g}}^{\infty}{B_{({g + t})} \times v_{{wd}{({g + t})}} \times {{}_{\left( {g + t} \right)}^{}{}_{}^{}}}}$c = (X₃ + Y₃), where$X_{3} = {\sum\limits_{t = 1}^{360 - g}{B_{({g + t})} \times v_{{wd}{({g + t})}}^{t} \times {{}_{\left( {g + t} \right)}^{}{}_{}^{}}}}$$Y_{3} = {\sum\limits_{t = {361 - g}}^{\infty}{B_{({g + t})} \times v_{{wd}{({g + t})}} \times {{}_{\left( {g + t} \right)}^{}{}_{}^{}}}}$

The liquid distribution may then be made at step 212 in accordance withthe annuity contract, e.g., the liquidity option elected. Thedistribution of the liquid asset may be made in a variety of ways aswell, such as in the form of a cash value, which includes actual cash,payment by check, wire transfer, etc. The annuity information may thenbe updated, step 214, to reflect and/or account for the distribution. Asnoted above, where the distribution is in the form of an advance,subsequent future income payments may not be distributed for the timeperiod for which the advance was taken. Thus, for example, an advance ofsix monthly future income payments may cause the future income paymentsto cease for the six months for which the advance was taken. Where thedistribution is in the form of a lump sum distribution of the value ofthe annuity, subsequent future income payments may instead be reduced toreflect the distribution. Finally, where the distribution is a lump sumlegacy benefit, the annuity information will be updated accordingly toreflect the distribution. The above steps may then be repeated forsubsequent demands to convert at least a portion of the value of theannuity into a liquid asset.

Referring to FIG. 3, a system useful in providing an annuity withliquidity options according to one embodiment of this invention includesa client interface 302 having a processor and associated computermemory, a display device 306, and an input device 308. The clientinterface 302 is at least one of a programmable calculator, or apersonal computer or special purpose computer having appropriatesoftware or otherwise designed to compute or assist in computing firstinsurance premiums, subsequent insurance premiums, etc., according tothe methods described herein. The software may be installed locally atthe client interface 102, thereby enabling a user, such a broker, agent,or potential annuitant, to input information obtained regarding theannuity contract, and to compute or assist in computing a premium forthe annuity given a selected or specified future income payments orfuture income payments given a selected or specified purchase price orpremium. The software may be proprietary software designed to providethe methods described herein or, alternatively, commonly availablesoftware, such as spreadsheet or a database programs, adopted to performthe same.

In an alternative embodiment, the client interface 302 iscommunicatively connected to at least one server 314 over acommunications network 316, such as a local area network (LAN), a widearea network (WAN), the Internet, the World Wide Web (WWW), a wirelessnetwork, or a combination thereof. The server 314 includes at least onedatabase, such as an annuitant database 310. The annuitant database 310generally includes information obtained that is useful for issuing andproviding an annuity contract, such as personal information, annuityvariables, annuity options, etc.

In one embodiment, the client interface 302 accesses the relevantdatabase or databases, stored locally at the client interface 302 orremotely at the server 314, for information necessary to compute orotherwise determining the premium or price of the annuity contract orthe future income payments, and may update the relevant databasesaccordingly. Similarly, the client interface 302 accesses the annuitantdatabase to compute the liquid distribution, e.g., the advance payment,the lump sum distribution, etc.

While the invention has been described and illustrated in connectionwith preferred embodiments, many variations and modifications as will beevident to those skilled in this art may be made without departing fromthe spirit and scope of the invention, and the invention is thus not tobe limited to the precise details of methodology or construction setforth above as such variations and modification are intended to beincluded within the scope of the invention.

1. A method of providing an annuity having a guarantee periodcomprising: obtaining information useful for issuing an annuity from anindividual; and computing an annuity variable selected from the groupconsisting of an annuity premium and future income payments, the annuityvariable computed based at least partially on the information obtainedfrom the individual, wherein the annuity comprises at least oneliquidity option allowing a holder of the liquidity option to exercisethe option and to convert therewith a portion of a value of the annuity,computed at least in part based on the value of future income payments,into a liquid asset.
 2. The method of claim 1, wherein annuity comprisesat least one liquidity option allowing the holder of the option toconvert a portion of the value of the annuity into a liquid asset afterthe annuity payments have begun.
 3. The method of claim 1, wherein theannuity comprises at least one liquidity option allowing the holder ofthe option to convert a portion of the value of the annuity into aliquid asset, the conversion comprising an advance of at least a portionof the future income payments.
 4. The method of claim 3, wherein theliquidity option allows the holder of the liquidity option to exercisethe option for a limited number of times.
 5. The method of claim 4,wherein the liquidity option allows the holder of the liquidity optionto exercise the option twice after annuity payments begin.
 6. The methodof claim 3, wherein the conversion comprises an advance of a pluralityof the future income payments.
 7. The method of claim 3, wherein theconversion comprises an advance of six months of the future incomepayments.
 8. The method of claim 3, wherein future income payments dueto the holder of the liquidity option subsequent to the advance ceasefor a period of time to account for the advance of the future incomepayments.
 9. The method of claim 8, wherein the conversion comprises anadvance of six months of future income payments and the future incomepayments cease for six months subsequent to the advance.
 10. The methodof claim 8, wherein the conversion comprises a lump sum distribution ofsix months worth of future income payments, wherein the advancecomprises five future income payments and future income payments ceasefor a period of five months to account for the lump sum distribution.11. The method of claim 1, wherein the annuity comprises a life annuitybased on the life of at least one annuitant, guaranteeing future incomepayments for a duration of the life of the at least one annuitant. 12.The method of claim 1, wherein the annuity comprises at least oneliquidity option allowing the holder of the option to convert a portionof the value of the annuity into a liquid asset, the conversioncomprising a lump sum distribution of at least a portion of a commutedvalue of the annuity computed based at least in part on the presentvalue, at the time of the conversion, of future income payments for theremainder of the guarantee period.
 13. The method of claim 12, whereinthe annuity comprises a guarantee period based on the life of theannuitant and wherein the conversion comprises a lump sum distributionof at least a portion of the commuted value of the annuity computedbased at least in part on the present value, at the time of theconversion, of future income payments for the life of the annuitant. 14.The method of claim 12, wherein the annuity comprises at least oneliquidity option allowing the holder of the option to exercise theliquidity option for a limited number of times.
 15. The method of claim14, wherein the annuity comprises at least one liquidity option allowingthe holder of the option to exercise the liquidity option once after theannuity payments begin.
 16. The method of claim 12, wherein the annuitycomprises at least one liquidity option allowing the holder of theliquidity option to exercise the liquidity option at predefined timeintervals after the annuity payments begin.
 17. The method of claim 16,wherein the liquidity option allows the holder of the liquidity optionto exercise the liquidity option at about an anniversary of acommencement date to receive income payments, the anniversary selectedfrom the group consisting of the fifth, tenth, and fifteenthanniversaries.
 18. The method of claim 12, wherein the annuity comprisesat least one liquidity option allowing the holder of the liquidityoption to exercise the liquidity option upon a showing of an occurrenceof a predefined event.
 19. The method of claim 12, wherein the annuitycomprises at least one liquidity option allowing the holder of theliquidity option to convert a portion of the value of the annuity into aliquid asset, the conversion comprising a lump sum distribution of about30% of the commuted value of the annuity.
 20. A method of providing anannuity having a guarantee period comprising: obtaining informationuseful for issuing an annuity from an individual; and computing anannuity variable selected from the group consisting of an annuitypremium and future income payments, the annuity variable computed basedat least partially on the information obtained from the individual,wherein the annuity comprises at least one liquidity option allowing aholder of the option to convert a portion of a value of the annuity intoa liquid asset, the conversion comprising an advance of at least aportion of the future income payment.
 21. A method of providing anannuity having a guarantee period comprising: obtaining informationuseful for issuing an annuity from an individual; and computing anannuity selected variable from the group consisting of an annuitypremium and future income payments, the annuity variable computed basedat least partially on the information obtained from the individual,wherein the annuity comprises at least one liquidity option allowing aholder of the option to convert a portion of a value of the annuity intoa liquid asset, the conversion comprising an advance of a plurality offuture income payments, and wherein the future income payments due tothe holder of the liquidity option, subsequent to the advance, cease fora period of time to account for the advance of future income payments.22. A method of providing an annuity having a guarantee periodcomprising: obtaining information useful for issuing an annuity from anindividual; and computing an annuity variable selected from the groupconsisting of an annuity premium and future income payments, the annuityvariable computed based at least partially on the information obtainedfrom the individual, wherein the annuity comprises at least oneliquidity option allowing a holder of the liquidity option to convert aportion of a value of the annuity into a liquid asset, the conversioncomprising a lump sum distribution of at least a portion of a commutedvalue of the annuity computed based at least in part on the presentvalue, at the time of the conversion, of future income payments for theremainder of the guarantee period.
 23. A method of providing an annuityhaving a guarantee period comprising: obtaining information useful forissuing an annuity from an individual; and computing an annuity variableselected from the group consisting of an annuity premium and futureincome payments, the annuity variable computed based at least partiallyon the information obtained from the individual, wherein the annuitycomprises at least one liquidity option allowing a holder of theliquidity option to convert a portion of a value of the annuity into aliquid asset, and a guarantee period based on the life of an annuitant,the conversion comprising a lump sum distribution of at least a portionof a commuted value of the annuity computed based at least in part onthe present value, at the time of the conversion, of future incomepayments for the life of the annuitant.
 24. A method of providing anannuity having a guarantee period comprising: obtaining informationuseful for issuing an annuity from an individual; and computing anannuity variable selected from the group consisting of an annuitypremium and future income payments, the annuity variable computed basedat least partially on the information obtained from the individual,wherein the annuity comprises at least one liquidity option allowing aholder of the liquidity option to convert a portion of a value of theannuity into a liquid asset, and a guarantee period based on the life ofan annuitant, the conversion comprising a lump sum distribution of atleast a portion of a commuted value of the annuity computed based atleast in part on the present value, at the time of the conversion, offuture income payments for the life of the annuitant.
 25. A method ofproviding an annuity having a guarantee period comprising: obtaininginformation useful for issuing an annuity from an individual; andcomputing an annuity variable selected from the group consisting of anannuity premium and future income payments, the annuity variablecomputed based at least partially on the information obtained from theindividual, wherein the annuity comprises at least one liquidity optionallowing a holder of the liquidity option to convert a portion of avalue of the annuity into a liquid asset once after annuity paymentsbegin, and a guarantee period based on the life of an annuitant, theconversion comprising a lump sum distribution of about 30% of a commutedvalue of the annuity computed based at least in part on the presentvalue, at the time of the conversion, of future income payments for thelife of the annuitant.
 26. A method of providing an annuity having aguarantee period comprising: obtaining information useful for issuing anannuity from an individual; and computing future income payments, theannuity variable computed based at least in part on a legacy benefitoption which provides a lump sum distribution of a portion of an annuitypremium substantially certain at inception of the annuity to abeneficiary upon the death of at least one annuitant.
 27. The method ofclaim 26, comprising computing future income payments based at least inpart on a liquid benefit option which provides a lump sum distributionof a percentage of an annuity premium, the percentage selected from thegroup consisting of about 25% and about 50%.
 28. The method of claim 26,wherein the legacy benefit option provides a lump sum distribution to abeneficiary that does not expire during the term of the annuity.
 29. Themethod of claim 28, comprising computing future income payments with thefollowing algorithm:$B = \frac{\left( {{{Premium}\quad \times \left( {1 - T} \right)} - F} \right) - \left( {k \times {Premium}\quad \times A_{x}} \right)}{a_{x}}$where: B=monthly future income payment at issue T=premium tax F=policyfee k=lump sum reduction factor x=issue age (in years) A_(x)=net singlepremium per unit of death benefit for issue age x a_(x)=Present value ofa life annuity for issue age x
 30. A method of facilitating distributionof annuity payments comprising: receiving a demand for a liquiddistribution; and computing the liquid distribution according to atleast one liquidity option of an annuity, the liquidity option allowinga holder of the liquidity option to convert a portion of the value ofthe annuity into a liquid asset, the value of the annuity computed atleast in part based on a value of future income payments.
 31. The methodof claim 30, comprising computing the liquid distribution in the form ofan advance of at least a portion of future income payments.
 32. Themethod of claim 31, wherein the advance of future income paymentscomprises an advance of a plurality of future income payments.
 33. Themethod of claim 31, wherein the advance of future income paymentscomprises an advance of six months of the future income payments. 34.The method of claim 31, wherein the liquid distribution comprises a lumpsum distribution of six months worth of future income payments, whereinthe advance comprises five future income payments and future incomepayments cease for a period of five months to account for the lump sumdistribution.
 35. The method of claim 31, wherein the liquidity optionallows the holder of the liquidity option to exercise the option twiceafter annuity payments begin.
 36. The method of claim 31, comprising:making the liquid distribution; and ceasing future income payments dueto the holder of the liquidity option subsequent to the advance for aperiod of time to account for the advance of the future income payments.37. The method of claim 36, wherein the liquid distribution comprises anadvance of six months of future income payments and the future incomepayments cease for six months subsequent to the advance.
 38. The methodof claim 36, wherein the liquid distribution comprises a lump sumdistribution of six months worth of future income payments, wherein theadvance comprises five future income payments and future income paymentscease for a period of five months to account for the lump sumdistribution.
 39. The method of claim 30, comprising computing theliquid distribution in the form of a lump sum distribution of at least aportion of a commuted value of the annuity computed based at least inpart on the present value, at the time of the conversion, of futureincome payments for the remainder of the guarantee period.
 40. Themethod of claim 39, wherein the annuity comprises a guarantee periodbased on the life of an annuitant and wherein the liquid distributioncomprises a lump sum distribution of the at least a portion of thecommuted value of the annuity computed based at least in part on thepresent value, at the time of the conversion, of future income paymentsexpected to be paid out for the life of the annuitant.
 41. The method ofclaim 39, wherein the at least one liquidity option allows the holder ofthe option to exercise the liquidity option once after annuity paymentsbegin.
 42. The method of claim 39, wherein the at least one liquidityoption allows the holder of the liquidity option to exercise theliquidity option at predefined time intervals after annuity paymentsbegin.
 43. The method of claim 42, wherein the at least one liquidityoption allows the holder of the liquidity option to exercise theliquidity option at about an anniversary of a date elected for annuitypayments to begin, the anniversary selected from the group consisting ofthe fifth, tenth, and fifteenth anniversaries.
 44. The method of claim39, wherein the at least one liquidity option allows the holder of theliquidity option to convert about 30% of the commuted value of theannuity into a liquid asset.
 45. A method of facilitating distributionof annuity payments comprising: receiving a demand for a liquiddistribution; and computing the liquid distribution according to atleast one liquidity option of an annuity, the liquidity option allowinga holder of the liquidity option to convert a portion of the value ofthe annuity into a liquid asset, the liquid distribution in the form ofan advance of a plurality of future income payments.
 46. A method offacilitating distribution of annuity payments comprising: receiving ademand for a liquid distribution; computing the liquid distributionaccording to at least one liquidity option of an annuity, the liquidityoption allowing a holder of the liquidity option to convert a portion ofthe value of the annuity into a liquid asset, the liquid distribution inthe form of an advance for a plurality of future income payments; makingthe liquid distribution; and ceasing future income payments due to theholder of the liquidity option subsequent to the advance for a period oftime to account for the advance of the future income payments.
 47. Amethod of facilitating distribution of annuity payments comprising:receiving a demand for a liquid distribution; and computing the liquiddistribution according to at least one liquidity option of an annuity,the liquidity option allowing a holder of the liquidity option toconvert a portion of the value of the annuity into a liquid asset, theliquid distribution in the form of a lump sum distribution of at least aportion of a commuted value of the annuity computed based at least inpart on the present value, at the time of the conversion, of futureincome payments for the remainder of the guarantee period.
 48. A methodof facilitating distribution of annuity payments comprising: receiving ademand for a liquid distribution; and computing the liquid distributionaccording to at least one liquidity option of an annuity, the liquidityoption allowing a holder of the liquidity option to convert a portion ofthe value of the annuity into a liquid asset, the annuity comprising aguarantee period based on the life of an annuitant, the liquiddistribution in the form of a lump sum distribution of at least aportion of a commuted value of the annuity computed based at least inpart on the present value, at the time of the conversion, of futureincome payments expected to be paid out for the life of the annuitant.